What is Rule of 72?

The Rule of 72 is an easy method for calculating how long it will take an investment to double its value at a given yearly rate of return. Divide 72 by the projected yearly return percentage to determine how long it will take for the investment to double up. 

It allows investors to understand growth rates and the impact of repeating without having to perform complex calculations. Although it does not provide an exact figure, it is a useful tool for investment planning and evaluation. This article explains what is the rule of 72 in detail. 

How to Use the Rule of 72? 

Here’s how to use the rule of 72:  

• Determine the projected yearly rate of return on the investment. 
• Divide 72 by this rate. 
• The result displays the projected number of years required for the investment to double.  

This method is useful for analysing different investments and defining long-term financial goals. 

Formula for the Rule of 72 

The rule of 72 formula is: 
72 ÷ Annual Rate of Return = Years to Double 
 
For instance: 
If an investment generates an 8% yearly return, the equation would be: 
 
72 ÷ 8 = 9 years 
 
This suggests that the investment is predicted to double in around nine years, demonstrating the compounding impact in a straightforward manner. 
 

Applications of the Rule of 72 

To better understand what is the rule of 72, it is important to know its applications. 

• Estimating how long it will take an investment to double at a specific return rate 
• Comparing various return predictions for long-term planning.  
• Learning the effect of compound on savings and investments 
• Evaluating inflation consequences by calculating how soon buying power may drop  
• Making financial discussions easier without using complex mathematical models. 

These applications demonstrate why the rule is still frequently used in financial education. 

Advantages and Disadvantages 

The table below explains the advantages and disadvantages to help clarify what is the rule of 72:  

Conclusion 

The Rule of 72 is a helpful guide for determining how long it will take an investment to double. By simplifying the notion of compounding, it allows investors to gain a better understanding of prospective growth without requiring complex computations. While it should not be used solely in place of detailed financial analysis, it is a useful tool for long-term planning purposes. Knowing what the Rule of 72 is allows investors to accurately analyse potential returns and investment timelines, especially when tracking investments or planning strategies through an online trading app.